On one of the biggest single-day plunges of the US stock market since liberation day on April 25, I registered one of my highest single-day gains (USD4.256k) by exiting some of my profitable positions in my trading portfolio.
[10 Oct 25] +USD4.256k Profits, Take Profits on Shares and Options Positions
This is in stark contrast to the stock market plunge that happened last year on 5 Aug 24 due to the Japanese carry yen trade, where I was frantically selling in pre-market after I realised that I was -$16k down in excess liquidity. Back then, I eventually realised a loss of USD38k by selling stocks such as Tesla, Palantir and Nvidia below my average purchase price. Had I not been forced to sell away those stocks, I would have gained close to USD200k today.
Read more here: 5 Aug 24, A Black Monday For Me (USD38k Realised Loss) | Risk Of Trading On Margins
Why Is It Different This Time Round?
There are a few reasons why I have made realised gains instead of realised losses this time round.
Reason 1: Not Using leverage
Last year, I was constantly facing low excess liquidity issues because I went on leverage to save my broken options trades and naked covered calls. For my SELL PUT contracts, I did not have enough cash on hand to make it become Cash Secured PUT (CSP) contracts. If all the SELL PUT contracts were exercised, then I would still have a shortfall of -S$200k, assuming I sold the shares that were newly assigned to me.
Fast forward to the present day, my current trading portfolio do not use any margins and I have enough cash to covered all of my CSP contracts. Thus, even if the CSP contracts were exercised, I would not face margins call or any risk of liquidation.
Reason 2: Long Dated Options Expiration Date
Many, if not all of my current options contracts have very long expiration date, so that means I am less affected by theta (time) decay, which would cause a rapid drop in premium as it nears the expiration date. The long expiration date allows the stocks to ride through short term volatility and have ample time to rise high again.
Reason 3: Using Debit Spread Instead Of Credit Spread
I learnt my lesson the hard way when a failed BULL PUT Spread (PUT Credit Spread) on Tesla resulted in a margins call and total liquidation of my entire portfolio.
I Was Margin Called, IBKR Liquidated ALL My Positions & Realised S$540k (USD400k) Worth Of Losses
I now use only debit spread, which has a very low chance of getting early assignment on the SELL leg of the vertical spread contract.
Reason 4: Shares In Higher Percentage Than Options
Before I was liquidated, my trading porfolio capital had a high percentage allocation to options contract and that was a risk as options contracts are time sensitive. My current portfolio has almost 50% capital allocation on shares of fundamentally strong companies, which could stand the test of time. Should there be any market crashes or stock prices going sideways, I am still able to wait it out for the stock prices to recover and create new highs over time.
Concluding Thoughts
After my restart in April this year, my trading philosophy has been more risk-averse and it has helped to prevent me from getting into situation where I could lose a huge amount of money instantly, just like what happened on 5 Aug 24 and 10 Feb 25.
In my full investment portfolio, I have most of capital allocaiton in low risk asset classes such as bonds and dividend stocks, while leaving one-sixth of my capital allocation to riskier assets such as options trading.
Being conservative does not mean that we can’t earn any money, it is just trading more responsibly than YOLO-ing all our money on risky asset classes and expecting it to double or triple in a short period of time. To justify this point, my trading portfolio has grown almost 40% since I started my USD45k trading account in May, with almost equal profits coming from shares and options trading.
This also shows that we do not need to depend on options trading to profit as buying the right shares and watching them grow can also yield very good returns. If you are keen to find out what trades I have done, when I place them or take profits on them, you can follow me at my Patreon page.
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